The World Bank is currently engaged in discussions regarding a possible $1 billion loan aimed at supporting South Africa’s efforts to revamp its energy sector.
Marie Francoise Marie-Nelly, the World Bank’s director for South Africa, confirmed that the loan, intended for the government itself rather than the state utility Eskom, is currently “under discussion.” She shared this information in an interview held in Marrakech, Morocco.
“It is going to come very soon,” she added, declining to specify a timeframe.
In 2022, the country witnessed more than 200 days of power cuts, which was already considered the worst year for blackouts in its history.
According to data provided by Eskom, South Africa is facing a severe electricity crisis in 2023, surpassing the levels of power cuts experienced last year.
The crises is primarily attributed to the frequent breakdowns of Eskom’s ageing coal-fired plants, Reuters reported.
These persistent power outages have had a detrimental impact on economic growth and have also spurred increased private investment in renewable energy sources.
“It’s a policy development loan which supports critical reforms,” Marie-Nelly said of the potential World Bank funding. “There’s a particular focus on transmission, because it is a stumbling block in terms of bringing new (capacity) that is going to be built mainly by the private sector.“
In February, the South African government made a commitment to absorb over 254 billion rand (equivalent to $13.4 billion) of Eskom’s debt under a debt relief initiative, with certain stipulations.
The primary condition set forth was that Eskom would be restricted from incurring any new debt for a three-year period unless such debt acquisition is granted approval by the country’s finance minister.
In 2019, the government announced its intention to divide Eskom into three distinct subsidiaries: transmission, generation, and distribution. Eskom subsequently revealed in August that its transmission subsidiary would not become operational until 2025.
The proposed World Bank loan would not only assist South Africa in transitioning away from coal but also ensure a “just transition” that safeguards vulnerable populations from adverse effects, as explained by Marie-Nelly.
She added that the government is also exploring broader climate-related initiatives, including considerations for the carbon tax.
In November 2022, the World Bank approved $497 million in financing to decommission and repurpose one of Eskom’s coal-fired power plants.
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